Legal Legacy of the Deepwater Horizon

Roger Williams University Law Review
Volume 17 | Issue 1
Article 8
Winter 2012
Blowout: Legal Legacy of the Deepwater Horizon
Catastrophe:Settle or Sue? The Use and Structure
of Alternative Compensation Programs in the Mass
Claims Context
Deborah E. Greenspan
Dickstein Shapiro LLP
Matthew A. Neuburger
Dickstein Shapiro LLP
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Recommended Citation
Greenspan, Deborah E. and Neuburger, Matthew A. (2012) "Blowout: Legal Legacy of the Deepwater Horizon Catastrophe:Settle or
Sue? The Use and Structure of Alternative Compensation Programs in the Mass Claims Context," Roger Williams University Law
Review: Vol. 17: Iss. 1, Article 8.
Available at: http://docs.rwu.edu/rwu_LR/vol17/iss1/8
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Settle or Sue?
The Use and Structure of Alternative
Compensation Programs in the Mass
Claims Context
Deborah E. Greenspan* and Matthew A. Neuburger*
* Deborah Greenspan is the co-leader of Dickstein Shapiro's Complex Dispute
Resolution Group. Her practice focuses on class action, mass tort and
bankruptcy law and procedure with a particular expertise in mass torts and
products liability, analysis of damages and future liability exposure,
negotiation, alternative dispute resolution, claims evaluation and dispute
analysis, settlement distribution design and implementation, claims
management and risk analysis, and general litigation. She has represented
clients in the most significant complex litigation matters in the United
States. Representative clients include Dow Corning Corporation, Pfizer Inc,
Kaiser Aluminum & Chemical Corporation, Armstrong World Industries,
Inc., Corning Incorporated, and General Motors. She has been appointed to
serve as a special master and neutral in various matters, including the Agent
Orange Product Liability Litigation, and has designed and implemented
complex claims resolution procedures systems for both corporate clients and
the Federal Government.
Ms. Greenspan was the Co-Chair of the
International Institute for Conflict Prevention and Resolution Commission on
Facilities for the Resolution of Mass Claims, which has published a book and
detailed guide to Mass Claims Resolution Facilities. She served as the
Deputy Special Master of the September 11th Victim Compensation Fund of
2001, and she currently serves as the Deputy Special Master appointed by
the U.S. Department of Justice for the reauthorized September 11th Victim
Compensation Fund which will provide compensation for those who aided in
the rescue and recovery efforts after the September 11 attacks as well as
residents and survivors in the area of the attacks who have been injured as a
result of the attacks.
t Matthew Neuburger is an associate in Dickstein Shapiro's Complex Dispute
Resolution Group. He focuses his practice on complex civil litigation,
97
98 ROGER WILLIAMS UNIVERSITYLAWREVIEW
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I. INTRODUCTION
Imagine a major environmental disaster - one that affects
property and wildlife over a wide geographic area and leads tens
or hundreds of thousands of individuals and businesses to claim
billions of dollars in damages for loss of income and activities that
are based on use of the damaged property and wildlife. Suppose
further that not only are the surrounding communities suffering
significant immediate loss, but that there is also no way to
measure the long-term effects of the disaster. Chances are that
you are envisioning the BP oil spill in April 2010. The event was
front-page news for months. Every day, the media catalogued the
various methods (many unsuccessful) to contain the spill. Almost
immediately after the spill commenced, and months before the
well was eventually capped and the flow of oil stopped,
individuals, businesses, interest groups, and governmental
entities who claimed to be affected by the spill started filing
lawsuits. Within weeks, over 200 cases had been filed claiming
personal injury, property damage, economic loss, and
environmental damage resulting from the oil spill, many of them
on behalf of classes of thousands of individuals and/or entities.I
The litigation picture was and is extraordinarily complex and
the claimants and defendant companies involved almost certainly
will be embroiled in litigation for years. The cases claim damages
measuring in the billions and involve complex issues of liability
and causation, and daunting issues of proving and measuring
long-term damage and loss. This situation highlights both the
merits and the limitations of our legal system. While our system
provides the mechanisms for eliciting and developing the facts and
for identifying and measuring claims, the sheer volume of the
claims involved here means that as a practical matter, claimants
who pursue litigation are unlikely to obtain any recovery for years
alternative dispute resolution, and responding to government investigations.
Mr. Neuburger devotes a significant amount of his practice to helping
administer the reauthorized September 11th Victim Compensation Fund of
2001.
1.
11,
John Schwartz, First the Spill, Then the Lawsuits, N.Y. TIMES, June
2010,
at
A14,
available at http://www.nytimes.com/2010/06/11/us/
1l1iability.html? pagewanted=all.
2012]
SETTLE OR SUE?
99
(assuming they prevail at all). Is there a "better" way? Is there a
reasonable and viable alternative to what is likely to be years of
costly litigation - not only in this situation, but in other mass
claims situations as well?
We all know that President Obama negotiated with BP to
establish a claims facility (the Gulf Coast Claims Facility, or
"GCCF') in an effort to disburse payments to those individuals
and businesses directly and immediately affected by the spill.
Clearly one initial goal was to forestall the potentially devastating
effects on families and local areas directly impacted.
And
certainly the GCCF has succeeded in distributing funds to affected
claimants more quickly and at less cost to the claimants than
would have been the case if the claimants had simply waited for
the litigation option to run its course. But critics complain that an
alternative compensation program like this could undermine our
legal system by avoiding the process of discovering the facts (facts
that could bear on liability, damage and prevention of similar
events in the future) and that an alternative compensation
program is inherently inequitable because it will necessarily
"homogenize" claims. On the other hand, how can the litigation
system effectively address hundreds of thousands of claims? Can
claimants afford the delay inherent in this process? And at some
point, won't litigation fatigue coupled with cost and risk prompt
litigants to settle whether or not they have strong, legally
cognizable claims? Remember that the Exxon Valdez litigation
lasted for 20 years.
To help inform this debate, this article examines "alternative
claims resolution programs" - when they have been established,
how they have been supervised and how they operate. Part II of
this article describes these claims programs, their genesis and
their benefits and drawbacks. Providing a window into the
practical application of claims facilities, Part III examines the
establishment and workings of the GCCF. Finally, Part IV
presents the challenges raised when facilities like the GCCF aim
to resolve claims before litigation and how these claims facilities
intersect with the simultaneous lawsuits being pursued by
claimants who choose that route.
II. WHAT IS A MASS CLAiMS RESOLUTION FACILITY?
For purposes of this article, we define a mass claims
100 ROGER WILLIAMS UNIVERSITY LAWREVIEW
[Vol. 17:97
resolution facility as any operation (regardless of legal structure)
that is established to conduct an administrative process through
which thousands or even hundreds of thousands of damages
claims are to be resolved outside of traditional litigation. In this
context, the claims to be resolved typically arise out of a single
incident or event or with respect to a type of product. The
"administrative process" applied means that claims generally are
not subjected to the type of adversarial procedures that define the
United States litigation system, but instead are resolved based on
a set of negotiated rules that define eligibility, necessary proof,
and compensation terms.
This section examines the attributes of such claims resolution
programs and considers the use of such administrative
mechanisms to resolve claims in contrast to the traditional legal
process. Is an administrative compensation program fair? Does it
subvert the legal process? Does it invite frivolous claims? Does it
dispense "justice"? Are they a necessary reality?
A. Common Attributes of Mass Claims Programs
As administrative systems, mass claims facilities eschew
many of the adversarial aspects of traditional litigation. Instead,
they represent "an inquisitorial model of decisionmaking." 2
Claimants submit "claims" of their alleged damages to a facility
that then evaluates and pays the claims based on a set of rules
and procedures that define the nature of the evidence that must
be supplied by the claimant.
Usually established to settle
litigation or avoid it in the first place, claims facilities are often
created and funded by parties facing significant liability who,
potentially with other interested parties such as representatives of
the claimant population, design the facility's structure and
adjudicative process. This generally includes appointing key
players and defining the types of injuries and damages that the
facility will compensate, the amount and types of evidence
necessary to prove that injury, and how much the facility will pay
for each type of claim or for all claims combined.
The structures of mass claims facilities vary, but many large
facilities consist of governing bodies of appointed trustees, a
2.
Francis E. McGovern, The What and Why of Claims Resolution
Facilities,57 STAN. L. REV. 1361, 1368 (2005).
2012]1
SETTLE OR SUE?
101
claims administrator, financial and statistical consultants, and a
In
staff responsible for evaluating and processing claims.
evaluating claims, the review staffs often follow strict eligibility
and compensation rules that are designed to ensure that the
correct claims are paid and that similar claims are paid
equivalently. Eligibility criteria vary by facility, though many
require documentary evidence, such as proof of use of the product
in question, or medical verification of compensable conditions.
Many facilities offer multiple filing options, such as a streamlined
track requiring little if any documentation (and thus a smaller
award) and a more detailed option requiring detailed evidence and
offering higher possible awards.
Most mass claims facilities are designed to pay similar claims
similarly, but they employ a number of different methodologies to
achieve this goal. Many facilities create a "grid" with base
amounts for different types of claims that can be adjusted based
on some number of variables. For example, many claims facilities
that are established to address claims alleging personal injuries
caused by asbestos-containing products are designed to pay equal
amounts to people claiming the same diseases, regardless of when
those claimants file their claims, or the age, employment,
education level, or dependants of the claimant. To do so, the
facility will define the conditions that are eligible for
compensation and the medical support required to establish those
conditions, and will develop guidelines including a value grid or
chart that establishes specific values, or in some cases a range of
values, that can be allocated to each specific qualified disease. On
the other end of the spectrum, some mass claims facilities
evaluate claims on a case-by-case basis and determine damages
based on documentation of injury or loss. For example, the
September 11th Victim Compensation Fund ("September 11th
VCF" or "VCF") adjudicated individual claims based on general
guidelines embodied in regulations issued by the United States
Department of Justice. 3 Though they may lack a payment
schedule or grid, the more individualized processes nevertheless
3. See KENNETH R. FEINBERG ET AL., FINAL REPORT OF THE SPECIAL
MASTER FOR THE SEPTEMBER 11TH VICTIM COMPENSATION FUND OF 2001 at 4-5,
9 (2004), available at http://www.justice.gov/final-report.pdf
SEPTEMBER 11TH FINAL REPORT].
[hereinafter
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employ other procedures and mechanisms to ensure consistent
outcomes.
Mass claims resolution programs can be and often are
designed to evaluate and resolve not only the identified claims but
claims that are expected to arise in the future. The issue of future
claims and future manifestations create significant legal and
administrative issues. As a legal matter, any program that is
designed to address future claims must incorporate procedural
mechanisms to protect the interests of future claimants. The
mechanisms might include the appointment of a representative of
future claimants, procedures for providing notice or opt-out rights
for future claimants, and procedures for reserving assets to ensure
that the future claims receive value that is consistent with the
value paid to "current" claims. These sorts of mechanisms have
been employed in situations where the parties know the general
nature - but typically not the number - of potential future claims.
In some situations, however, there is no way to determine today
the nature, type or "cost" of future damage. For example, the
Deepwater Horizon oil spill may have future effects on the
environment, natural resources, and wildlife, and it may be
impossible today to identify or quantify those future effects. This
"unknown" does not preclude the parties from developing a claims
resolution system, of course, but it may force the parties to
develop procedures for adjusting claim values or for periodic
claims evaluation.
Mass resolution programs can be structured to incorporate
aspects of the litigation system. For example, the program can
incorporate procedures for hearings, appeals, and resort to
individual mediation, arbitration or even litigation. In general,
however, the programs are designed to encourage the majority of
claimants to accept the more streamlined resolution procedures
and to dissuade claimants from pursuing other more time
consuming and "costly" options.
B. Types of Claims Resolution Programs/Facilities
A claims resolution program is defined by its source of
authority - a factor that impacts its structure, funding, and
procedures for resolving claims.4 We most often think of these
4.
CPR
INST. COMM'N ON FACILITIES FOR THE RESOLUTION OF MASS
2012]
SETTLE OR SUE?
103
claims facilities being utilized in the context of companies settling
mass tort, class action litigation, but they also arise in other
contexts: bankruptcies, legislation, and "privately" created
facilities.
1. Class Action Settlements
A mass claims facility may be created to distribute funds
obtained through the settlement of a class action. In general,
state and federal rules governing class actions do not purport to
address the mechanics of distributing settlement proceeds.
However, a court that has certified a class must determine
whether the settlement that has been proposed is "'fair,
reasonable, and adequate."' 5 To an extent, that determination
will rest on the terms for distributing settlement proceeds: how
are eligible class members defined? Are the assets provided in
settlement sufficient to compensate those eligible claimants?
What procedures will be employed to determine which class
members are in fact eligible? How will they be notified? While
courts might take very different roles with respect to oversight of
the settlement distribution, the court's general obligations under
the procedural rules governing class actions provide a basis for
court supervision and oversight. 6 Among the most notable claims
facilities that were established to settle class-action litigation are
the Vioxx Settlement Program, for claimants alleging that the
pain reliever caused fatal heart attacks and strokes,7 and the
Agent Orange Settlement Fund, which distributed nearly $268
million to Vietnam veterans for injuries allegedly stemming from
their exposure to chemical herbicides used during the Vietnam
War.8
CLAIMS, MASS CLAIMS RESOLUTION FACILITIES (CPR MASTER GUIDES ON
CONFLICT PREVENTION AND RESOLUTION) 5 (2011) [hereinafter MASS CLAIMS
RESOLUTION FACILITIES].
5. See id. at 7 (quoting FED. R. CIv. P. 23(e)(2)).
6. Id. at 7-8.
7. Vioxx
Settlement Update, OFFICIAL VIOXX SETTLEMENT,
http://www.official vioxxsettlement.com/ (last visited Nov. 22, 2011).
8. Final Report of the Special Master on the Distribution of the Agent
Orange Settlement Fund at 1-2, In re "Agent Orange" Prod. Liab. Litig., MDL
No. 381 (E.D.N.Y. Sept. 24, 1997).
104 ROGER WILLIAMS UNIVERSITYLAWREVIEW
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2. Bankruptcy Trusts
Chapter 11 debtors may establish trusts or similar entities as
part of a plan of reorganization that will be responsible for
operating procedures for the resolution of mass claims. When tens
or hundreds of thousands of claims with similar allegations are
made against a debtor, individualized evaluation and resolution of
each claim is impractical if not impossible. In such cases, debtors
have developed claims resolution programs that are designed to
receive, review, evaluate, and pay claims over a period of years or
even decades. Typically, the debtor will provide a mechanism for
funding this claims resolution program (often through a variety of
different types of assets that may be paid to the program over a
period of years). The program then assumes the liability of the
debtor and becomes responsible for all aspects of the claims
resolution process subject to the rules set forth in a plan of
reorganization. This structure allows the reorganized debtor to
emerge from bankruptcy free of the former liability. In the Dow
Corning bankruptcy, for example, the debtor, Dow Corning,
proposed a plan of reorganization that provided for the
establishment of two "facilities" - one, a settlement facility and
the other a "litigation" facility. 9 Each facility was to be funded by
assets of the debtor over a multiyear period.10 The claimants had
the option of choosing to settle their claims based on specific
terms, criteria and conditions contained in the plan of
reorganization documents, or litigating their claims against an
entity that for those purposes assumed the liability of the
debtor." Those claimants who elect to settle have their claims
adjudicated under detailed rules that define the types of medical
conditions that warrant a payment, the amount of the payment
and the proof that must be provided to qualify for payment.12
Those individuals who elect to litigate their claims proceed
through certain pretrial procedures set forth in the plan of
reorganization and can then pursue normal litigation. 3 The
claims resolution facility created to resolve hundreds of thousands
9. Amended Joint Plan of Reorganization at 37-38, In re Dow Corning
Corporation, No. 95-20512 (Bankr. E.D. Mich. Feb. 4, 1999).
10. See id. at 56.
11.
See id. at 38-41.
12. Id. at 38-39.
13. Id. at 52.
SETTLE OR SUE?
2012]1
105
of tort claims asserted against the A.H. Robins Company also
provides an informative example.14
The most common example of a bankruptcy-created claims
resolution facility occurs in the context of personal injury claims
arising out of alleged exposure to asbestos-containing products.
The general structure of such asbestos "trusts" arose out of the
Manville Corporation bankruptcy in the 1980s. Manville filed its
bankruptcy petition in 1982 when it faced fewer than 20,000
asbestos personal injury claims.1 5
The Manville plan of
reorganization established a trust for the purpose of resolving
asbestos claims. 16 The trust was funded with cash, stock,
insurance assets, and a profit sharing arrangement.' 7 The claims
(current and future) were "channeled" to the trust via a
channeling injunction issued under section 105 of the Bankruptcy
Code.' 8 Congress subsequently enacted the Bankruptcy Reform
Act of 1994, which basically codified the structure adopted in the
Manville plan.19 The Act (codified at Section 524(g) of the
Bankruptcy Code) authorizes the establishment of a trust
14.
Facing mounting liability exposure arising from claims of injury
related to its Dalkon Shield contraceptive device, A.H. Robins filed a Chapter
11 petition for reorganization. After a lengthy process designed to determine
the number and value of potential tort claims not yet asserted in litigation,
the bankruptcy court defined the extent of the liability, and that
determination paved the way for a plan of reorganization. The plan called for
the establishment of a trust - to be funded by the sale of the company - that
was designed to adjudicate and pay claims. The reorganization plan included
certain guidelines for the determination of eligible claims and compensation
amounts. The plan also provided that the district court where the claims had
been filed would supervise the trust, although it would not have any power
over the trust's "day-to-day operations." The trust eventually paid $2.8
billion to 200,000 claimants. George Rutherglen, DistributingJustice: The
September 11th Victim Compensation Fund and the Legacy of the Dalkon
Shield Claimants Trust, 12 VA. J. Soc. POL'Y & L. 673, 674-75, 683, 685-86
(2005); Georgene M. Vairo, The Dalkon Shield Claimants Trust: Paradigm
Lost (or Found)?,61 FORDHAM L. REV. 617, 626, 629-31, 641 (1992).
15. Kathleen M. Nilles, Defining the Limits of Liability: A Legal and
PoliticalAnalysis of the European Community Products Liability Directive, 25
VA. J. INT'L L. 729, 759 n.167 (1985).
16.
See LLOYD DIXON, GEOFFREY McGOVERN & AMY COOMBE, ASBESTOS
BANKRUPTCY TRUSTS: AN OVERVIEW OF TRUST STRUCTURE AND ACTIVITY WITH
DETAILED REPORTS ON THE LARGEST TRUSTS 5 (2010), available at
www.rand.org/pubs/technical-reports/2010/RANDTR872.pdf.
17. Id.
18. See id. at 5-6.
19.
Id. at 7.
106 ROGER WILLIAMS UNIVERSITY LAWREVIEW
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(provided certain conditions are met) to review and resolve
claims. 20 Provided that there is a representative of future claims
and that the current claimants vote in favor of the plan by
seventy-five percent in number (a "supermajority vote"), the
current claims and future demands can be channeled to the trust,
and if the court further finds that there has been a substantial
contribution made to the trust, the channeling injunction can also
apply to claims asserted against certain third-party entities that
have potential derivative liability for the asbestos claims against
the debtor. These "524(g)" trusts are intended to operate for
decades and their plans typically impose strict guidelines and
requirements so that the trusts are able to pay claims at
equivalent levels through a decades-long claims process. 2 1 So that
similar claims - both present and future - are treated equally, the
statute requires the appointment of a future claims representative
to act on behalf of future claimants, the creation of trust
distribution plans calling for generally equal treatment of similar
claims, and the formation of "mechanisms... that provide
reasonable assurance that the trust will value, and be in a
financial position to pay, present claims and future demands that
involve similar claims in substantially the same manner." 22 To
date, more than fifty Section 524(g) trusts have been
established.2 3
3. Governmental/LegislativeFacilities
Beginning as early as the Whiskey Rebellion and the War of
1812, the federal and state governments have established
administrative programs to resolve claims that otherwise would
result in mass tort and disaster-related litigation. 24 Because the
processes for these types of claims funds are usually mandated by
20. Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 111, 108 Stat.
4106, 4113-17 (codified as amended at 11 U.S.C. § 524).
21. See 11 U.S.C. § 524(g) (2006).
22. See id. § 524(g)(2)(B)(ii)(V), (h)(1)(B).
23. See DIXON, McGOVERN & COOMBE, supra note 16, at 29.
24. Adam S. Zimmerman, Funding Irrationality, 59 DUKE L.J. 1105,
1118-20 (2010). Examples of disaster-related funds include the September
11th VCF and the Minnesota Bridge Collapse Emergency Relief Fund. Funds
designed to avoid mass tort litigation include the National Vaccine Injury
Compensation Program, 42 U.S.C. § 300aa-10 to -11 (2006), and the Ricky
Ray Hemophilia Relief Fund Act, id. § 300c-22.
2012]1
SETTLE OR SUE?
107
statute, administrators of government-created claims funds
generally are obligated to follow statutory guidelines and must
interpret and implement the legislative intent. 2 5 Perhaps the
government
claims facility is the
best-known recent
September 11th VCF. The VCF was created less than eleven days
after the 9/11 attacks. Congress enacted legislation to limit the
liability of the airlines (and certain other entities) for damages
claims arising out of the September 11th attacks. In conjunction
with that limitation on liability, Congress established an
administrative compensation program, funded by the federal
government, for the purpose of providing compensation for victims
The program was implemented through
of the attacks.
regulations - which were subject to notice and comment. The
Fund was operated through a Special Master appointed by the
Attorney General of the United States. Congress set forth general
guidelines in the statute but left the development of the detailed
guidelines and the decision-making authority to the Special
Master and the Department of Justice. 26 The VCF has been cited
as an example of a claims resolution program in which
considerable discretion was vested in the Special Master.2 7 The
decisions of the Special Master were, by statute, final and not
subject to judicial review. Importantly, however, the guidelines of
the VCF program - as set forth in the regulations - were subject
to challenge and were challenged in litigation contesting the
regulations. 28
Congress reauthorized the VCF in late 2010 for the purpose of
25. MASS CLAIMs RESOLUTION FACILITIES, supra note 4, at 9.
26. Mike Steenson & Joseph Michael Sayler, The Legacy of the 9/11
Fund and the Minnesota 1-35W Bridge-CollapseFund: Creating a Template
for Compensating Victims of Future Mass-Tort Catastrophes, 35 WM.
MITCHELL L. REV. 524, 526, 531-33 (2009). Because a primary goal was to
dissuade victims and their families from suing the beleaguered airline
industry, the fund's establishing statute, the Air Transportation Safety and
System Stabilization Act, Pub. L. No. 107-42, 115 Stat. 230 (2001) (codified as
amended at 49 U.S.C. § 40101 (2006)), based the compensation scheme on
the tort system's calculation of damages. Steenson & Sayler, supra at 532.
However, many of the details necessary to implement the scheme - who
qualified for compensation, how to determine awards, the appeals process were absent from the statute and were instead left to the discretion of Special
Master Kenneth Feinberg. Id. at 534.
27. See, e.g., Steenson & Sayler, supranote 26, at 533.
28. See, e.g., Colaio v. Feinberg, 262 F. Supp. 2d 273 (S.D.N.Y. 2003).
108 ROGER WILLIAMS UNIVERSITYLAWREVIEW
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providing compensation to rescue and recovery workers, clean-up
workers, and those in the area of the 9/11 attacks, for ongoing and
In
latent injuries suffered as a result of the attacks. 29
reauthorizing the VCF, Congress did not alter the original
regulations except to add the new eligibility criteria and to
eliminate provisions that are no longer relevant.
4. Private "SelfHelp" Claims Facilities
Companies facing presumptive or actual mass claims may
elect to create a claims facility without the supervision of courts
and outside the scope of any litigation. 30 That is, an entity facing
potential claims may choose to establish a procedure for reviewing
and evaluating claims before they are filed in the court system.
Bypassing the court system generally allows affected parties
considerable flexibility in designing and implementing the claims
process. 3 1 For example, they may choose to run the claims process
themselves, entirely delegate the process to an "independent"
third party or elect a middle-ground approach and retain some
control or input over an independently run process. 3 2 The parties
are also free to determine the remedies available to claimants and
the scope of the release (if any) necessary to obtain those
remedies. 33 Finally, because they are not bound by statutes or
court oversight, administrators of private claims funds may have
more flexibility to modify the claims process to address new or
unforeseen developments. 34
C. Strengths and Weaknesses of Claims Facilities
Is an administrative claims resolution program good? Is it
good for the parties? Good for the civil justice system? Does it
advantage one party over another?
Although every claims resolution program presents unique
29. James Zadroga 9/11 Health and Compensation Act of 2010, Pub. L.
No. 111-347, §101, 124 Stat. 3623, 3624-27 (to be codified as amended at 42
U.S.C. 300mm)
30. As discussed in Part IV infra, a party intending to create a claims
process outside judicial control may nonetheless find itself unable to do so.
31.
MASS CLAIMS RESOLUTION FACILITIES, supranote 4, at 9.
32.
Id.
33.
Id.
34.
Id.
2012]
SETTLE OR SUE?
109
issues, there are certain factors that are inherent in any sort of
administrative resolution mechanism.
In general, an
administrative claims resolution program will not examine claims
with the same depth that is likely to occur in a trial.
Administrative resolution programs may be required to promote
consistency measured by objective criteria and thus may tend to
"homogenize" claims for purposes of valuation. Inevitably, if
measured against a litigation outcome, a claims resolution
program is likely to pay more for some claims and pay less for
others. From the perspective of the claimant, an administrative
program may be faster than litigation, and a claimant may obtain
compensation years earlier than would be the case were the claim
to be pursued through trial. An administrative program may also
be more flexible and allow claimants to amend claims and to
supplement and clarify submissions. This section notes some of
the issues inherent in and criticisms raised with respect to an
administrative program.
1. Advantages of Administrative Claims Programs
Some argue that administrative claims programs provide an
avenue for a defendant to escape full discovery and to minimize
damages - and are thereby detrimental to claimants, the judicial
system, and the broader general public. Others contend that the
phenomenon of mass claims means that a defendant may be
forced into a resolution mechanism that results in "overpayment"
or payment to claimants who are "undeserving" because the
alternative prospect of potential decades of litigation will be costly
and disruptive and will divert important resources from the true
business of the company. In general, we do not view this debate
as susceptible to an all-encompassing resolution. The relative
merits of these contentions may well vary depending on the
particular situation, the options available, the magnitude and
number of claims, and the resources of the alleged defendant. For
example, if privacy, prompt resolution, and closure are of
paramount concern, then an administrative system may be
preferable from any perspective, regardless of whether one
believes that some claimants could have obtained higher
compensation in the litigation system.
If disclosure and
punishment of wrongdoing are of paramount concern, then it may
be that an administrative system would undermine those goals
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and would therefore not be preferable. (And, of course, we do not
discount the possibility of a hybrid system in which litigation
continues as to certain claimants or certain issues in parallel with
an administrative compensation program.) In this section, our
focus is on the benefits that claims facilities offer (against the
backdrop of our litigation system):
Speed - By aggregating cases, claims facilities can
compensate huge numbers of claimants more quickly than the tort
system. 35 Litigation tends to move more slowly. The process of
developing the case and scheduling hearings and trials in courts
with crowded dockets may result in a multi-year process (not
including appeals). An administrative system, on the other hand,
may be able to develop a compensation program in a matter of
weeks. While it may take a significant amount of time for parties
to develop the criteria and guidelines for an administrative
program, once the program is established, the claims facility
should be able to evaluate thousands or tens of thousands of
claims in a matter of months.3 6 The rate at which claimants are
paid after a facility is established depends on the complexity of the
claims evaluation process, but even the most elaborate and
individualized process compensates claimants more quickly than
litigation. 3 Even class action lawsuits, which consolidate scores
35. For example, within just three years of the terrorist attacks, the
September 11th VCF paid out over seven billion dollars to more than 5,500
claimants.
SEPTEMBER 11TH FINAL REPORT, supra note 3, at 1. In its first
year, the GCCF paid more than 204,000 claimants more than five billion
dollars. The Gulf Coast Claims Facility After Its First Year of Operation
(August 23, 2010 - August 22, 2011) An Executive Summary, GULF COAST
CLAIMS FACILITY, 1 (Aug. 23, 2011), http://www.gulfcoastclaimsfacility.com/
ANNIVERSARY REPORT 8.23.1l.pdf.
36.
See Alexandra D. Lahav, The Law and Large Numbers: Preserving
Adjudication in Complex Litigation, 59 FLA. L. REV. 383, 388-89 (2007). For
example, just 14 weeks after September 11th, the VCF opened its doors on
December 21, 2001, the same day that the Department of Justice and Special
Master Kenneth Feinberg issued Interim Final Regulations describing the
processes for submitting and determining claims. Final Regulations were
issued and claim forms were released to the public less than three months
later on March 13, 2002. See SEPTEMBER 11TH FINAL REPORT, supra note 3, at
5.
37.
McGovern, supra note 2, at 1379.
For example, the GCCF
determines a claim's eligibility and compensation within 90 days of the
claim's submission. Gulf Coast Claims FacilityProtocolfor Interim and Final
8,
FACILITY, V.A.1
(Feb.
Claims, GULF COAST CLAIMS
http://www.gulfcoastclaimsfacility.com/proto_4.php
[hereinafter
2011),
GCCF
SETTLE OR SUE?
2012]1
111
of individual cases, cannot match the speed offered by claims
facilities and in any event, often end up employing facilities to
efficiently distribute settlements to claimants.
Cost - Claims are also resolved less expensively via claims
facilities than in the tort system. 38 A process that determines
values based on defined parameters is inherently cheaper than an
adversarial system that requires multiple-party input and
emphasizes strategic behavior.
And the more that a fund
standardizes the claims process, the lower the transaction costs
will be. 39 Claims facilities can also channel more funds to
claimants and less to attorneys. 40
Claims are paid more consistently - While the tort system
can produce apparent inconsistent results for similarly situated
cases, claims resolution facilities have the ability to employ a
variety of mechanisms to ensure that similar claims are paid
similarly.41 Indeed, defining parameters that determine the value
of claims promotes consistency and fairness and helps keep
transaction costs down. To maximize consistency, administrative
claims programs may classify claims by objective criteria, pay
claims based on a matrix or schedule that takes into account
defined factors, or apply formulas to individual circumstances. 42
For example, as noted above, many asbestos facilities classify
claimants by their asbestos-related disease, and provide ranges,
Protocol]. The September 11th VCF issued eligibility and presumed award
determinations within forty-five days after submission of a claim requesting
evaluation though the expedited "Track A" process. SEPTEMBER 11TH FINAL
REPORT, supra note 3, at 15.
38.
Administration costs for the September 11th VCF amounted to just
1.2% of the benefits awarded to claimants.
See SEPTEMBER 11TH FINAL
REPORT, supra note 3, at 77. Even if one were to include the pro bono work
provided by The Feinberg Group law firm, the number would be only
marginally higher. In the Dalkon Shield facility operating expenses
amounted to less than 6.9% of the total amounts paid to claimants.
Rutherglen, supranote 14, at 702.
39. Rutherglen, supra note 14, at 676-77; MASS CLAIMS RESOLUTION
FACILITIES, supra note 4, at 31.
40. As an example, while more than seventy-five percent of the money
that passed through the Dalkon Shield trust went to claimants, that number
is estimated at less than fifty percent in the tort system. Rutherglen, supra
note 14, at 702-03.
41. See McGovern, supra note 2, at 1379-80.
42. MASS CLAIMS RESOLUTION FACILITIES, supranote 4, at 101.
112 ROGER WILLIAMS UNIVERSITY LAWREVIEW
[Vol. 17:97
averages, and maximum values for each category. 43 In addition, a
claims resolution facility can account for future claims and can
employ mechanisms to ensure that future claims are paid in the
same manner as then-current claims.
More claimants may receive a payment - One can debate
whether this is a benefit: a defendant that funds a claims facility
might conclude that distributions to claimants are inflated
because claims are not tested through the rigors of the tort
system.
Moreover, claimants with more significant claimed
injuries might argue that their recovery is being diluted by the
distribution of funds to claimants with less significant injuries.
But these arguments go to the details of the rules for distributing
assets and not to the mechanism that can be employed to evaluate
and pay claims. A claims facility can address differences in the
quality of claims in a variety of ways: by offering multiple tracks
(under which claimants may elect a simple process with lower
payments or a more rigorous process with the potential for higher
documentation
by
establishing
stringent
payment);44
requirements; or by stratifying payments based on "tort system"
factors like income, age, and condition.
Cost certainty - In the uncertain world of mass tort and
disaster litigation, claims facilities offer finality and cost certainty
- a benefit to defendants and claimants alike. Claimants get
money up front, without having to endure the risks and costs of
litigation. 45 Moreover, provided that the facility is established
with appropriate controls and guidelines to reserve assets for
future claims, claimants whose injuries manifest later or who
43. Id.
44. For example, the Dalkon Shield facility offered claimants three
different options for filing claims. Under the simplest, a claimant would
receive a $725 payment simply for timely submitting a claim along with an
affidavit stating that the claimant used the Dalkon Shield and 'was injured
or believes she may have been injured as a result of such use."' Rutherglen,
supra note 14, at 689 (citation omitted). Similarly, the GCCF offers a
subsequent "Quick Payment" option to claimants who previously received an
Emergency Advance Payment. An individual choosing this option submits no
additional paperwork and receives a final award of $5000 (businesses receive
$25,000) within 14 days of signing a release of liability. GCCF Frequently
Asked Questions, GULF COAST CLAIMS FAcILITY, FAQ 18, available at
http://www.gulfcoastclaimsfacility.com/faq (last visited Nov. 22, 2011)
[hereinafter GCCFFAQs].
45. McGovern, supra note 2, at 1380.
2012]1
SETTLE OR SUE?
113
otherwise delay filing claims are still left with a solvent entity
from which to seek compensation. 46 For defendants, establishing
an administrative claims program helps to establish and maintain
a predictable cash flow, which in turn facilitates planning in
general.4 7 Perhaps most importantly, the cost certainty allows the
marketplace to more accurately value the company, minimizing
the initial free fall and subsequent lagging of stock prices
associated with uncertain liability. 4 8 This clearly benefits the
defendant, but there is also a benefit to claimants: a company that
is not plagued by uncertain litigation exposure will be more secure
and thus will have more flexibility in funding the administrative
system. Indeed, some claims resolution programs may be funded
with stock or profits of the defendant. In fact, Section 524(g)
trusts must "own, or by the exercise of rights granted under such
plan ... be entitled to own if specified contingencies occur, a
majority of the voting shares of - (aa) each such debtor; (bb) the
parent corporation of each such debtor; or (cc) a subsidiary of each
such debtor that is also a debtor . . .
,"
so the amount of money
available to pay claimants may be directly tied to the defendant's
stock price. 49
Flexibility to tailor the claims program - Rather than
being hamstrung by the rigid procedural rules of litigation, mass
claims facilities allow the parties developing the program to tailor
it to their particular goals, needs, and constraints. The goals and
purposes for each claims facility are different: some aim to
compensate the most costly claims; some seek to compensate the
majority of claims that have a less defined or less costly injury
while leaving the most significant cases to be resolved in a
different process; some seek to capture all potential claims. Some
facilities provide services; some facilities provide access to benefits
46.
See Georgene Vairo, Why Me? The Role of Private Trustees in
Complex Claims Resolution, 57 STAN. L. REv. 1391, 1397 (2005) (discussing
the traditional litigation model in which some plaintiffs are overly rewarded,
depleting assets and leaving little for others).
47.
Defendants are also sometimes able to capture the time value of
money by paying net present value prices for nominal dollar damages. MASS
CLAIMS RESOLUTION FACILITIES, supra note 4, at 44; McGovern, supra note 2,
at 1380.
48. McGovern, supra note 2, at 1380.
49. See 11 U.S.C. § 524(g)(2)(B)(i)(III) (2006); MASS CLAIMS RESOLUTION
FACILITIES, supra note 4, at 38.
114 ROGER WILLIAMS UNIVERSITY LAWREVIEW
[Vol. 17:97
programs in lieu of cash compensation. Some facilities address
medical conditions; some address economic loss. The nature of the
claims, the claimant population, and the nature and availability of
supporting evidence are all factors that will be taken into account,
and that will drive the terms, guidelines, rules, and procedures of
the facility. Claims fund designers can control a number of
variables, including how much power and authority to delegate to
the facility, the eligibility requirements and classifications for
claimants, the types of reviews, appeals, and remedies available,
and the timing of claims, evaluations, and awards.
Flexibility to adjust the claims program - Depending on
the how much authority it has, a claims facility may also be able
to adjust to changing or unforeseen circumstances. For example, a
claims administrator may want to alter the process if it becomes
clear that certain forms of proof are unobtainable by claimants or
if the cost of processing certain claims turns out to be
substantially higher than expected.so Similarly, adjustments may
be necessary if claims are being made more quickly or slowly than
originally expected.
2. Disadvantagesof ClaimsFacilities
Of course, administrative claims programs have drawbacks,
many of which are the flipside of specific benefits. Put another
way, the precise characteristics that make administrative
compensation programs useful also represent weaknesses that
may be less prevalent in the judicial system.
Among the
disadvantages:
Some claimants may get lower recoveries - In exchange
for relieving themselves of the risks and costs of litigation,
claimants may receive a lower amount from a claims facility than
what might be available in a courtroom. 52 In other words, while
there is no guarantee of success in litigation, the biggest possible
verdict is likely higher than the biggest possible award from a
claims facility. Because the very purpose of claims facilities is to
pay similarly situated claimants similarly, this inherently means
that some claimants would have been paid more through litigation
50.
MASS CLAimS RESOLUTION FACILITIES, supranote 4, at 12.
51.
Id. at 43-44.
52.
McGovern, supra note 2, at 1380.
2012]
SETTLE OR SUE?
115
and some would have been paid less. 53 In fact, an administrative
compensation system can be structured to avoid the possibility
that all assets of a company will be diverted to those who win the
race to the courthouse - leaving other claimants with no recourse.
This is a significant benefit in situations involving alleged latent
injuries. This concern, of course, is one of the reasons for
addressing mass liability claims through a class or bankruptcy
proceeding.
Claims facilities also typically exclude punitive
damages. 54
'Wrong" claims may get paid - Lacking the same degree of
judicial oversight or the checks and balances inherent in an
adversarial system, claims funds may, either systemically or
individually, compensate "wrong" claims or over- or undercompensate certain types of claims. 55 In an optimistic view, these
errors are unintentional or at worst due to improper planning.
For example, a fast and inexpensive claims process invites greater
53. Not only do claims facilities attempt to standardize the ordinary
fluctuations of case-by-case verdicts, but they also attempt to standardize
payments across time. Thus, because the predicted current and future
asbestos liabilities often exceed the debtor's assets, many 524(g) trusts lack
sufficient assets to pay claims "in full." Instead, to ensure that funds remain
available for future claims, the trusts pay claimants only a discounted
amount of their full claim. See MASS CLAIMS RESOLUTION FACILITIES, supra
note 4, at 6-7. Alternatively, in litigation, current claimants might be paid in
full, but claimants whose diseases manifest themselves later might be unable
to collect anything from an insolvent defendant.
54. See, e.g., Rutherglen, supra note 14, at 690 (discussing the exclusion
of punitive damages in the September 11th VCF and the Dalkon Shield trust
and stating that "preserving a right to recover punitive damages is
fundamentally inconsistent with encouraging parties to accept alternatives to
litigation").
55. What constitutes a "wrong" claim is of course in the eye of the
beholder. While most would probably agree that it is "wrong" to pay
claimants who were not actually damaged, there is less agreement about the
propriety of paying claims that may not be compensable in some jurisdictions
in the tort system. For example, is it "wrong" that asbestos trusts distribute
assets to claimants who allege a non-malignant condition and do not claim to
be impaired by the condition, even though some of those claimants would be
barred from bringing such a claim today in certain jurisdictions? See DIXON,
McGOVERN & COOMBE, supra note 16, at 33-34. Of course, many of those
same claimants may have been able to pursue their claims in the tort system
at the time the debtor filed its petition for bankruptcy. And to the extent
that such a trust seeks to treat similar claims consistently, how would a trust
determine to exclude certain claimants where the claimants may be able to
bring claims in a number of different jurisdictions?
116 ROGER WILLIAMS UNIVERSITY LAWREVIEW
[Vol. 17:97
numbers of claimants than litigation, which combined with the
comparatively lower proof requirements, leads to a greater
likelihood that insufficient, illegitimate, or fraudulent claims get
paid.
Some argue that a negotiated mass claim resolution
program creates the potential for deals that will divert funds to
particular groups or types of claimants - perhaps those
represented by certain law firms - and unfairly exclude others. 5
Less discovery into underlying facts - If an
administrative program is set up early in the life cycle of a
litigation, one could argue that this procedure may deprive the
general public of useful information that would otherwise be
uncovered in litigation. Litigation may sometimes be the only
window through which certain facts are made visible and the
benefits of this disclosure can be widespread. Most notably, as a
result of the 1998 Master Settlement Agreement with forty-six
states, the United States tobacco industry made more than
thirteen million documents publicly available. 58 In fact, analysis
of these documents continues to this day, resulting in new health
discoveries and other revelations. 59 By settling or preventing
56. MASS CLAIMs RESOLUTION FACILITIES, supra note 4, at 15; McGovern,
supra note 2, at 1383-84. Claims facilities may err too far on the other end of
the spectrum however, and in trying to ensure that only proper claims are
paid, establish strict documentation requirements that are impossible for
certain legitimate claimants to satisfy. See, e.g., Letter from Pam Bondi,
Attorney General, State of Fla., to Kenneth R. Feinberg, Feinberg Rozen,
LLP
(Feb.
16,
2011),
available
at
http://myfloridalegal.com/
webfiles.nsflWF/JDAS-8E7KAK/$file/AGBondiLettertoFeinberg.pdf
(raising
concerns about "the heavy burden of proof' required of GCCF claimants and
questioning how a business could ever document "tourists that never showed
up").
57. Some commentators believe that in any class action settlement,
there is a potential for collusive deals between defense attorneys and class
counsel at the expense of claimants or for deals that value some claimants
over others. See, e.g., Lahav, supra note 36, at 395; Zimmerman, supra note
24, at 1127-28. Of course, the oversight role of the court and the procedures
outlined in the federal and state rules are intended to prevent such an
outcome. Even public funds, which are seemingly more "fair" because they
are created by legislatures, nonetheless can raise related issues about why
certain defendants or industries are protected at the expense of others or
claimants. See Zimmerman, supra note 24, at 1128 n.102.
58.
See
Legacy
Tobacco Documents Library, UNIV.
CAL.
S.F.,
http://Ilegacy.library. ucsf.edul (last visited Aug. 11, 2011).
59.
See, e.g., Semira Gonseth et al., The Tobacco Industry's Past Role in
Weight Control Related to Smoking, EUR. J. PUB. HEALTH (Apr. 7, 2011),
available at http://eurpub.oxfordjournals.org/content/early/2011/04/07/eurpub
SETTLE OR SUE?
2012]
117
litigation, establishing an administrative claims program may
serve to deter the disclosure of useful health and safety
information. 60 Given that claims facilities often are used to
resolve mass torts resulting from disasters or allegedly dangerous
or defective products, the underlying facts may be particularly
helpful in exposing potential hazards or preventing or mitigating
future catastrophes. 6 1 But this argument ignores the reality of
litigation, i.e., that the vast majority of cases settled before trial or
before verdict and further assumes that the litigation
environment is the best or only way in which we can gain an
understanding of the facts and conduct the appropriate inquiries.
In a "mass claim" situation it is likely that there will be some
investigation by a governmental or public interest entity, 62
.ckr023.full.
60.
See, e.g., Richard A. Zitrin, The Case Against Secret Settlements (Or,
What You Don't Know Can Hurt You), 2 J. INST. FOR STUDY LEGAL ETHICS 115,
119-21 (1999).
61. As an example, some have questioned the long-term effects of the
dispersants that were considered and ultimately used in response to the BP
oil spill. Press Release, Nadler Chairs Judiciary Hearing on Ensuring Justice
for Victims of the Gulf Coast Oil Disaster (July 21, 2010), available at
http://nadler.house.gov/index.php?option=com_content&task=view&id=1522
&Itemid=119. Information about these dispersants might help scientists
address unforeseen circumstances in the Gulf or devise best practices for
future oil spills.
62. For example, in addition to being addressed at dozens of
congressional hearings, the BP oil spill has been the subject of several state
and federal investigations, by entities such as the United States Coast
Guard, the Bureau of Ocean Energy Management, Regulation and
Enforcement, and the United States Chemical Safety and Hazard
Investigation Board.
Richard Wray, BP Makes Record Loss As Tony
Hayward Quits, GUARDIAN,
July 27, 2010, http://www.guardian.
co.uk/business/2010/jul/27/tony-hayward-leaves-bp-1m-payoff.
On top of it
all, President Obama established the National Commission on the BP
Deepwater Horizon Oil Spill and Offshore Drilling, which issued its final
report in January 2011. See About the Commission, OIL SPILL COMM'N,
http://www.oilspillcommission.gov/page/about-commission (last visited Nov.
22, 2011). Similarly, in the wake of September 11th, Congress held countless
hearings and appointed an independent commission, The National
Commission on Terrorist Attacks upon the United States, "to prepare a full
and complete account of the circumstances surrounding the September 11,
2001 terrorist attacks, including preparedness for and the immediate
response to the attacks." See About the Commission, NAT'L COMM'N ON
TERRORIST ATTACKS UPON THE U.S., http://www.9-llcommission.gov/ (last
visited Nov. 22, 2011). Product and drug recalls are likely to be investigated
by the Food and Drug Administration, Consumer Product Safety
118 ROGER WILLIAMS UNIVERSITY LAWREVIEW
[Vol. 17:97
although it may be that claimants have to raise the profile of the
issues and be persistent to achieve such an investigation. And, of
course, most claims facilities fail to eliminate all litigation, and it
may take only one case for the facts to come to light.
Common law does not develop - Another criticism of
administrative claims resolution programs is that they deprive
society of important precedent that results from judicially resolved
litigation. 63 Legal precedent is an important reference not only for
future courts that will be deciding similar issues, but also to guide
behavior and provide order to the general public. 64 Although
many of the key issues in a specific mass tort litigation may be
factual and therefore of questionable precedential value, some key
legal issues can arise, and decisions on those issues will be
important not just in subsequent litigations involving similar
claims but to the broader public as well.6 5 A counterargument to
this criticism is that the vast majority of cases that are filed in
federal or state courts are resolved through settlement anyway
and that mass claims account for a very small percentage of
litigation overall. Moreover, legal principles may still develop
outside the courtroom because novel compensation systems may
"facilitate discussions about the proper evolution of the law." 66
Claimants may want their "day in court" - Claimants
themselves are not typically involved in the creation of claims
facilities, and some commentators believe that their actual
Claimants want to
interests are not being represented. 6 7
Commission, or other federal agencies charged with overseeing the product in
question.
63. See Vairo, supra note 46, at 1402.
64.
David Luban, Settlements and the Erosion of the Public Realm, 83
GEO. L.J. 2619, 2622-23 (1995).
65. Vairo, supra note 46, at 1406, 1413.
66. Id. at 1413 (The September 11th VCF "provided the opportunity to
rethink the collateral source rule").
67. Though plaintiffs' attorneys are sometimes involved in establishing
claims programs, they may either place their own interests above those of the
claimants or may not fully understand what the claimants actually value.
See Lahav, supra note 36, at 395 ("The fear is that the attorneys will take
their own interests into account at the expense of the true interests of the
claimants . . . ."); Tom R. Tyler, A PsychologicalPerspective on the Settlement
of Mass Tort Claims, 53 LAw & CONTEMP. PROBS. 199, 199 (1990) ("Lawyers
typically believe that clients evaluate their legal experiences by the size of
the outcome upon settlement and the speed with which the outcome is
delivered; they do not think clients are concerned with how the problems are
2012]
SETTLE OR SUE?
119
participate in their own cases, tell their story to a neutral third
party, and have some control over their fate - something they
cannot do when their claims are valued by a formula or matrix. 6 8
A study involving detailed interviews with American asbestos
victims revealed that the victims had a preference for adjudication
- they wanted to face the asbestos companies in court - that was
distinct from their desire to be paid.69 Similarly, a study of
September 11th VCF claimants showed that money was not the
deciding factor in determining whether to join the fund, and the
decision involved "a deeply troubling trade-off between money and
a host of nonmonetary values that respondents thought they
might obtain from litigation."70 Notably, the VCF offered every
claimant the opportunity for a hearing, and over sixty-eight
percent of the claimants who filed a claim for the death of a victim
of the attacks opted for the hearing process. 7 A system designed
to settle claims in the most efficient manner may actually be the
opposite of what claimants want.
III. THE GULF COAST CLAIMS FACILITY
Against this backdrop, how does the Gulf Coast Claims
Facility compare? And how should it be evaluated? The GCCF is
a truly unique creation. Its origin, coupled with the different
types of claims involved, the employment of local claims
''adjusters," and the amount of funds initially committed,
distinguishes it from most other administrative claims program. 72
solved or how the favorable outcomes are reached.").
68. See Lahav, supra note 36, at 396.
69. Tyler, supra note 67, at 203. The study suggested that if offered
equal settlements through a quick arbitration or through a longer, drawn-out
trial, many victims would choose the latter. Id.
70.
Gillian K. Hadfield, Framing the Choice Between Cash and the
Courthouse:Experiences With the 9/11 Victim Compensation Fund, 42 LAw &
Soc'Y REV. 645, 647 (2008).
Though ninety-seven percent of potential
litigants chose to enter the fund, more than three-quarters of fund claimants
responding to the survey said that their decision was in no way based on how
much they thought they would be paid by the fund versus through litigation.
Id. at 664-65.
71. See SEPTEMBER 11TH FINAL REPORT, supra note 3, at 111.
72. The twenty billion dollars that BP allotted to the GCCF is nearly
three times as much as the September 11th VCF paid to claimants. See
SEPTEMBER 11TH FINAL REPORT, supra note 3, at 1. To put that figure in more
perspective, in 2010, no company made twenty billion dollars in profits and
120 ROGER WILLIAMS UNIVERSITY LAWREVIEW
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Thus, the tough questions ordinarily asked about claims facilities
are even more difficult here and may not even be the correct ones.
But before these questions can be explored, it is important to
understand the creation, structure, and mechanics of the GCCF.
A. The Creation of the GCCF
Like all claims funds, the GCCF is defined and understood by
the source of its creation. Unlike most funds however, the GCCF
does not cleanly fall into one of the four categories, but instead
falls somewhere on the spectrum between governmental and
private establishment. Designed to fulfill statutory obligations as
well as to settle other claims, the GCCF is essentially the result of
a "handshake" agreement between the Obama administration, BP,
and the Fund's administrator, Kenneth Feinberg.73
In the face of concerns over the original claims process that
BP had established to fulfill its obligations under the Oil Pollution
Act of 1990 (OPA), 74 the company met with President Obama in
June 2010.75 Following the meeting, the White House and BP
only 124 nations had a higher GDP. See Top Companies: Most Profitable,
CNN MONEY (May 3,
2010),
http://money.cnn.com/
magazines/
fortune/fortune500/2010/fulllist/; The World Factbook 2010, CENTRAL
INTELLIGENCE
AGENCY,
available
at
https://www.cia.gov/library/
publications/the-world-factbook/rankorder/2001rank.html (last visited Nov.
22, 2011).
73. See Jackie Calmes, For Gulf Victims, Mediator with Deep Pockets
and Broad Power, N.Y. TIMES, June 22, 2010, at A17, available at
http://www.nytimes.com/ 2010/06/23/us/23feinberg.html (according to Mr.
Feinberg, "'[a]ll of the design, all of the implementation and all of the
administration' of the claims process 'is basically a handshake between the
Obama administration, BP and me."').
74. Passed in the wake of the Exxon Valdez oil spill, OPA requires
parties responsible for oil spills to pay certain removal costs and damages.
See 33 U.S.C. §§ 2701-2762 (2006).
By accepting the government's
designation of it as a "responsible Party," BP was required to "establish a
procedure for the payment or settlement of claims for interim, short-term
damages." See id. § 2705(a); Letter from James H. Dupree, President, BP
Exploration and Production Inc., to Thomas Morrison, Chief, Claims Division,
U.S. Coast Guard (May 3, 2010), available at http://www.uscg.mil/
foialdocs/DWH/2094.pdf.
75. Katelyn Sabochik, The President'sMeeting with BP Executives: 'An
Important Step Towards Making the People of the Gulf Coast Whole Again",
WHITE HOUSE BLoG (June 16, 2010, 3:51 PM), http://www.whitehouse.gov/
blog/2010/06/16/important-step-towards-making-people-gulf-coast-wholeagain. At that meeting, President Obama expressed specific concerns about
BP committing sufficient and timely funds to the affected individuals. See id.
2012]
SETTLE OR SUE?
121
issued separate statements outlining the arrangement."
Both
parties called the resulting entity an "independent claims facility"
that would be administered by Mr. Feinberg and funded with
twenty billion dollars from BP.77 In addition to paying OPA
claims like BP's original claims process, this new facility would
also pay tort claims brought by individuals and businesses (but
not government entities).7 8 The White House statement provided
a few additional details, including that the facility would develop
and publish standards for recoverable claims, that a panel of three
judges would be appointed to hear appeals of the fund's decisions,
that dissatisfied claimants maintained all current rights to go to
court, and that the facility's decisions under current law would be
binding on BP. 79 Beyond these broad guidelines, the facility's
remaining details went entirely unstated.
The structure and function of this claims resolution program
are interesting and significant.
This specific structure was
created with the imprimatur of the federal government, but it is
not a governmental facility. And while the GCCF is in the
business of resolving claims against BP (and entities that might
assert claims against BP) both BP and the GCCF describe the
operation as independent from BP.so
Others had previously raised concerns over aspects of the process itself, such
as the litigation waiver that BP required in exchange for payment. See, e.g.,
Stephanie Condon, BP Told to Stop Distributing Oil Spill Settlement
Agreements, CBSNEWS (May 3, 2010, 11:52 AM), http://www.cbsnews.coml
8301-503544_162-20003978-503544.html.
76. See Press Release, BP Establishes $20 Billion Claims Fund for
Deepwater Horizon Spill and Outlines Dividend Decisions (June 16, 2010),
http://www.bp.com/genericarticle.do?categoryld=2012968&contentld=706296
6 [hereinafter BP Press Release]; Press Release, The White House Office of
the Press Secretary, FACT SHEET: Claims and Escrow (June 16, 2010),
http://www.whitehouse.gov/the-press-office/fact-sheet-claims-and-escrow
[hereinafter White House Fact Sheet].
77. BP Press Release, supra note 76; White House Fact Sheet, supra
note 76. Both statements made clear that the twenty billion dollars was
neither a floor nor a cap. BP Press Release, supra note 76; White House Fact
Sheet, supra note 76.
78. BP Press Release, supra note 76; White House Fact Sheet, supra
note 76.
79. White House Fact Sheet, supra note 76.
80. BP's Memorandum in Opposition to "Plaintiffs' Motion to Supervise
Ex Parte Communications Between BP Defendants and Putative Class
Members" at 21, In re Oil Spill by the Oil Rig "Deepwater Horizon" in the
Gulf of Mexico, on April 20, 2010, MDL No. 2179 (E.D. La. Jan. 10, 2011),
122 ROGER WILLIAMS UNIVERSITY LAWREVIEW
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While the GCCF is the result of an agreement between BP
and the federal government, this is not truly a "governmental"
claims fund: it is not funded by the government and the
government did not establish any of the specific criteria for
evaluating claims. Importantly, (and in contrast to the statutory,
governmentally-controlled VCF) there is no requirement that an
individual elect between litigation and the GCCF before receiving
an evaluation from the GCCF.8 1 In addition, the GCCF does
accept claims that are not covered under the OPA. On the other
hand, it is clear that both BP and various state and federal
governments have taken a strong interest in the GCCF and are
monitoring the operations. 82 BP has an express right to review
certain claims and the federal government is spearheading a
process to have an independent audit of the operation. 83
ECF No. 963. In his February 11, 2011 order, discussed infra, Judge Carl J.
Barbier found that Feinberg is not completely independent of BP, but
recognized that the GCCF independently evaluates and pays individual
claims. See Order and Reasons at 8, In re Oil Spill by the Oil Rig "Deepwater
Horizon" in the Gulf of Mexico, on April 20, 2010, MDL No. 2179 (E.D. La.
Feb. 2, 2011), ECF No. 1098 [hereinafter Order and Reasons]. However,
while both BP and Feinberg maintain that the company had no input on the
claims process, the claims protocol also notes "BP has also authorized the
GCCF to process certain non-OPA claims involving physical injury or death."
GCCFProtocol, supra note 37, at I.A.
81. Compare GCCF FAQs, supra note 44, at FAQ 53, with Air
Transportation Safety and System Stabilization Act, Pub. L. No. 107-42, 115
Stat. 230 (2001) (codified as amended at 49 U.S.C. § 40101 (2006)) at sec.
405(c)(3)(B)(i). It is interesting to compare the September 11th VCF:
although the statute that established the VCF granted considerable
discretion to the Special Master, the VCF was governed by statutory
mandates and regulations issued by the Department of Justice. The Special
Master was under the supervision and operated under the auspices of the
Attorney General. See Colaio v. Feinberg, 262 F. Supp. 2d 273, 279-82
(S.D.N.Y. 2003); Steenson & Sayler, supra note 26, at 532-34.
82. See generally Letter from Gulf Coast State Attorneys General to
Kenneth Feinberg (July 14, 2010), attached as Exhibit A to Statement of
Interest on Behalf of the State of Mississippi, In re Oil Spill by the Oil Rig
"Deepwater Horizon" in the Gulf of Mexico, on April 20, 2010, MDL No. 2179
(E.D. La. Jan. 24, 2011), ECF No. 1060-1; Letters from Kenneth Feinberg,
Administrator, Gulf Coast Claims Facility, to Gulf Coast Attorneys General
(various dates), attached as Exhibit 1 to BP's Supplemental Memorandum in
Opposition to "Plaintiffs' Motion to Supervise Ex Parte Communications
Between BP Defendants and Putative Class Members", In re Oil Spill by the
Oil Rig "Deepwater Horizon" in the Gulf of Mexico, on April 20, 2010, MDL
No. 2179 (E.D. La. Jan. 26, 2011), ECF. No. 1071-1.
83. See George Altman, Senate Amendment Would Require Audit of Oil
2012]1
SETTLE OR SUE?
123
B. Covered Claims and Payment Options
Under OPA, the GCCF was required to cover four types of
claims: (1) removal and cleanup costs; (2) real or personal property
damage; (3) lost profits or earning capacity; and (4) subsistence
use of natural resources. 84 Additionally, BP authorized the GCCF
to cover claims for personal injury or death, even though those
claims are not recoverable under OPA.8 Alternatively, BP or the
GCCF could have chosen not to cover personal injury claims or
could have chosen to cover additional claims, such as those for
pure mental or emotional suffering. 86
While OPA governs the processing and evaluating of the first
four types of claims, it provides no direction on how personal
injury and death claims should be determined. Instead, that
determination is, according to the GCCF, "guided, as applicable,
by other federal law and pertinent state law."87 Additionally,
while OPA requires claimants to present one of the first four types
of claims to the GCCF in the first instance,8 8 personal injury or
death claims do not need to be filed with the GCCF, and claimants
may sue BP for this damage even while seeking payment for their
OPA claims from the GCCF. 89
GCCF claimants can pursue several different payment
options. First, from August 23, 2010, through November 23, 2010,
they could apply for Emergency Advance Payments. 90 As implied
by the name, these payments were designed to provide emergency
relief for any of the five types of covered claims, and as such were
subject to a less-rigorous evaluation than later claims and were
Spill Claims Facility, ALA. LIVE, (October 22, 2011, 7:20 AM),
http://blog.al.com/1ive/ 2011/10/senate amendmentwouldrequire.html.
84. 33 U.S.C. § 2702(b) (2006).
85. GCCFProtocol,supra note 37, at I.A.
86. See Cal Woodward, Gulf Oil Spill Exposes Gaps in Public Health
Knowledge, 182 CAN. MED. Ass'N J. 1290, 1290-92 (2010), available at
http://www.cmaj.ca/ content/182/12/1290.full.
87. GCCF Protocol, supra note 37, at V.A.2.
88. If a claimant declines the GCCF's offer, it may then either sue BP or
file a claim with the National Pollution Fund Center (NPFC), which OPA
established as an alternative source of compensation. See 33 U.S.C. §§ 2712,
2713(a), (c) (2006).
89. GCCF Protocol, supra note 37, at II.E.
90. GCCFFAQs, supranote 44, at FAQ 14.
124 ROGER WILLIAMS UNIVERSITY LA WREVIEW
[Vol. 17:97
intended to be evaluated and paid in a shorter period of time. 9 1
Claimants did not need to sign a release to receive Emergency
Advance Payments. 9 2
Additionally, claimants may apply for Final Payment awards
regardless of whether they previously applied for, received, or
were denied an Emergency Advance Payment. 93 A Final Payment
Claim accounts, in one lump sum, for all past losses as well as an
estimate of all future losses caused by the oil spill. 94 Claimants
must submit documentation demonstrating their past losses as
well as evidence supporting what they claim their future damages
will be. 95
After evaluating the claimant's submission and
calculations made by experts the Fund retained, it makes an offer
to the claimant. 96 A claimant may accept or reject the offer, or
may submit additional support for his or her claimed damages,
which the Fund will then consider. 9 7 In order to accept the
GCCF's offer, a claimant (and his or her spouse) must sign a
Release and Covenant Not to Sue, which prevents them from
filing any other claims against BP or anyone else for damages
related to the spill.9 8 If the claimant rejects the offer, he or she
may then file a claim with the NPFC or sue BP.99
Instead of applying for all past and estimated future damages
at once, claimants may also choose to apply for Interim Payment
Claims, which account only for past damages caused by the oil
spill.
Under this option, claimants provide documentation
evidencing the losses they sustained from the time of the spill
until the filing date. 0 0 The Fund then evaluates these documents
91.
Gulf Coast Claims Facility Protocol for Emergency Advance
Payments, GULF
COAST
CLAIMs
FACILITY,
at
III.E
(Aug. 23,
2010),
http://www.gulfcoastclaims facility.com/proto_1.
92. Id. at III.G.
93. GCCFFAQs,supranote 44, at FAQ 35.
94. Id. at FAQ 34.
95. Id. at FAQ 40.
96. Id. at FAQs 42, 45.
97. See id. at FAQ 45.
98. Id. at FAQs 46-47.
99. Id. at FAQ 53.
Claimants may also appeal Final Claim
determinations exceeding $250,000 and BP may appeal Final Claim
determinations exceeding $500,000. See id. at FAQs 116, 120. Appeals are
heard by a three-person panel appointed by Jack M. Weiss, Chancellor of the
Louisiana State University Paul M. Hebert Law Center. Id. at FAQs 122,
124.
100. Id. at FAQs 61, 62.
2012]1
SETTLE OR SUE?
125
and makes an offer. A claimant may reject an Interim Payment
offer and instead file a claim with the NPFC or in court.o0 Or the
claimant can accept the offer, which unlike the Final Payment
Claim, does not require a release. 10 2 After accepting an Interim
offer, a claimant may continue to file subsequent Interim Payment
Claims, no more often than each quarter, until August 22, 2013, or
may file a Final Payment or Quick Payment Claim.103
Finally, a Quick Payment Claim is essentially a streamlined
way of being compensated for any future damages and is available
to claimants who were paid an Emergency Advance Payment or
an Interim Payment.104 Rather than going through the fullreview Final Payment process, a claimant may choose, without
submitting any more documents, to receive an additional payment
of $5,000 for individuals and $25,000 for businesses.10 5 Claimants
must sign a release to receive a Quick Payment.106
C. Claim Consideration and Valuation
Although OPA mandates that responsible parties set up a
claims facility where claimants must first file a claim, it also
expressly allows claimants to reject the facility's offer and pursue
the claim in court or with the NPFC.' 07 Thus, while a court may
ultimately decide whether someone is an appropriate claimant or
how much that person should get paid, nothing requires the
responsible party to predict or follow those anticipated decisions
at the initial stage. Parties can tailor their eligibility criteria and
award determinations to their own goals or expectations.
As a result, the GCCF had to determine how closely a
claimant's alleged harm - especially claimants seeking lost profits
or income - must be tied to the oil spill in order for the claimant to
be able to collect. Theoretically, nearly every American could
conceivably claim some injury or damage due to the oil spill, so the
Fund needed to establish some limitations. 0 8 To this end, the
101.
GCCF Protocol, supra note 37, at V.D.
102.
103.
104.
105.
106.
GCCFFAQs,supra note 44, at FAQ 65.
Id. at FAQs 59, 68.
Id. at FAQ 21.
Id. at FAQ 18.
Id. at FAQ 25.
107.
33 U.S.C. § 2713(a), (c) (2006).
108.
The zone of affected people and businesses gets exponentially larger
126 ROGER WILLIAMS UNIVERSITY LA WREVIEW
[Vol. 17:97
GCCF retained Harvard Law School professor John C.P. Goldberg
to analyze the extent of BP's liability for lost income under OPA
and relevant state law. It is again worth noting that nothing
required the GCCF to predict or follow OPA and relevant law at
this stage. Instead, it could have decided to over- or undercompensate and then let the claimants sort out the difference in
litigation with BP. In fact, even now it is unclear whether the
GCCF follows OPA and relevant law, or whether it covers more
claims than required. 109
OPA entitles claimants to "[d]amages equal to the loss of
profits or impairment of earning capacity due to the injury,
destruction, or loss of real property, personal property, or natural
resources. . . ."110 According to Professor Goldberg, this provision
should be read as limiting lost income damages only to those who
lost income due to property or resources being damaged by the oil
spill.''
Consequently, while "[p]hysical proximity to the Oil Spill"
with each step away from direct harm. Theoretically, for example, if the
fisherman cannot fish, they cannot sell to restaurants or distributors, and
those entities in turn might claim that as a result they had to pay more for
supplies and pass that cost along to customers. Of course, this chain of
events assumes that seafood from other sources is more expensive or less
desirable.
109. Compare GCCF Protocol,supra note 37, at II.G ("The GCCF will only
pay for harm or damage that is proximately caused by the Spill. The GCCF's
causation determinations of OPA claims will be guided by OPA and federal
law interpreting OPA. Determinations of physical injury and death claims
will be guided by applicable law.") with Press Release, Kenneth R. Feinberg,
Gulf Coast Claims Facility Releases Final Protocol Outlining Final & Interim
Payment
Stage
(Nov.
24,
2010),
http://weartv.com/newsroom/
documents/claimsfacility-final-interim-payment-stage.pdf ("The Goldberg
Memorandum makes clear that proximity to the spill is a major requirement
for a valid legal claim under the Federal Oil Pollution Control Act (OPA).
But, according to Feinberg, 'the GCCF will be much more generous than
current Federal or State Law. Proximity is not a bar to a GCCF claim. . ."'),
and Letter from Kenneth R. Feinberg to the Honorable Jim Hood, Attorney
General, State of Miss. (Nov. 22, 2010) attached as Exhibit 1 to BP's
Supplemental Memorandum, supra note 82 ("I refer you to the enclosed
Memorandum of Law prepared by Professor John Goldberg ....
This
Memorandum was prepared independently and without the input of anybody
at the GCCF. It confirms my view that the GCCF will find eligibility, and
calculate damages, well beyond the requirements of OPA.").
110. 33 U.S.C. § 2702(b)(2)(E) (2006).
111.
WITH
JOHN C. P. GOLDBERG, LIABILITY FOR EcoNoMIC Loss IN CONNECTION
THE
DEEPWATER
HORIZON
SPILL
37,
48
(2010),
available at
http://www.gulfcoastclaimsfacility.com/Goldberg.Memorandum.of.Law.2010.p
df. From a practical standpoint, this would mean that a beachfront hotel
2012]1
SETTLE OR SUE?
127
is not required for compensation, a claimant must be able "to link
the alleged damage to the Oil Spill - as opposed to other factors
such as a general downturn in the Gulf region economy or other
financial uncertainty unrelated to the Oil Spill...
1."ll2
Thus, a
business not located anywhere near the Gulf could still be paid by
demonstrating that certain customers in the affected region could
no longer purchase its goods or services because of a decrease in
customers or seafood caused by the spill.11 3 The key for all
claimants, regardless of location, is that they must show "both
actual financial loss and a connection between the loss and the Oil
Spill," and the GCCF says that it becomes harder to show a
connection to the spill, the farther a claimant is physically located
from the Gulf region.114
Moreover, because it is not always easy to determine a
claimant's precise damages, the GCCF needed to determine how
to value claims and the type of supporting documentation that is
necessary to substantiate a claim. Regardless of the forum or
mechanism, claimants seeking compensation have to provide
information that supports the determination of entitlement to and
the appropriate amount of compensation. An operation of the size
and scope of the GCCF - which covers a huge geographic area and
varied claim types - must guard against inappropriate claims.
Finally, the GCCF - in the context of Final Payments - must
make a determination of future damages. Any computation of
would be able to collect lost profits if guests stayed away because oil actually
reached the beach at or near the hotel's property. In this case, the hotel's lost
income was due to property actually being damaged (even if the hotel did not
own the property). In contrast, a beachfront hotel in a place like St.
Petersburg, Florida, which the oil never approached, could not collect lost
profits caused by a drop in guests. In this case, even if guests actually stayed
away, they did so out fear or misunderstanding that oil reached the property,
not because there was any actual damage to property. See id. at 39-42.
112. Gulf Coast Claims Facility Final Rules Governing Payment Options,
Eligibility and Substantiation Criteria, and Final Payment Methodology,
GULF COAST CLAIMs FACILITY, 2 (Feb. 18, 2011), http://www.gulfcoastclaims
facility.com/FINAlRULES.pdf [hereinafter GCCFMethodology].
113. Attachment A: Establishing Evidence of a Connection to the Spill,
GULF COAST CLAIMs FACILITY, 11 (Feb. 18, 2011), http://www.gulfcoastclaims
facility.com/ FINALRULESA.pdf. For example, a trucking company with
cancelled contracts for hauling Gulf seafood or an ice cream distributor with
reduced sales to affected hotels and restaurants may be able to establish a
sufficient connection to the spill. See id.
114. GCCF Methodology, supra, note 112, at 6-8.
128 ROGER WILLIAMS UNIVERSITY LAWREVIEW
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future damages involves estimates that are necessarily based on
assumptions. And those assumptions may or may not prove to be
accurate in hindsight. (Of course, the alternative is to allow
claimants to submit claims periodically for damages incurred
since the "last" evaluation.)
After retaining experts and
considering public comments, the GCCF established a formula to
calculate future damages, which it posted on its website and
reevaluates every four months based on the currently available
data." 5
Claimants unsatisfied with the formula for future damages
can instead choose to continuously file Interim Claims reflecting
their actual losses during the past period. While it is generally
easier to calculate actual past losses, this is not always an exact
science, as in the case of start-up businesses. Thus, the GCCF
reviews and evaluates each claim "on its own merits and specific
circumstances" and in the case of start-ups, it considers other
documents such as business plans, comparable businesses, and
industry trends. 116
The GCCF also had to determine whether certain amounts
would be added to or deducted from awards. In addition to their
damages, the GCCF will compensate claimants for "the reasonable
cost of estimating the damages claimed" but will not pay for
attorney's fees or other costs associated with preparing their
claim." 7 Nor will it pay for punitive damages, even though they
might be collectible in litigation. 1 1 Further, the Fund deducts
from Interim and Final Payments any amounts that the claimant
has received from BP or the GCCF (such as Interim or Emergency
Advance Payments), as well as from other "collateral" sources
such as insurance or unemployment benefits. 119 Traditionally,
collateral payments are not deducted from tort awards, though
some states have sought to change that traditional rule. 120
115. Id. at 3-4.
116. Id. at 4.
117. GCCF Protocol, supra note 37, at II.F.
118. Memorandum in Support of Motion to Supervise Ex Parte
Communications Between Defendant and Putative Class Members at 14,
In re Oil Spill by the Oil Rig "Deepwater Horizon" in the Gulf of Mexico, on
April 20, 2010, MDL No. 2179 (E.D. La. Dec. 21, 2010), ECF No. 912-1
[hereinafter Memorandum in Support].
119. GCCF Protocol, supra note 37, at V.G.
120. See Collateral Source Rule Reform, AMERICAN TORT REFORM
2012]
SETTLE OR SUE?
129
Finally, one additional important feature of the GCCF is that
free legal assistance is available to claimants.121 BP provides the
funding for these services, but the GCCF website states that the
funding does not affect the advice provided.122 The legal services
program assists only with filing claims with the GCCF and does
not provide assistance with litigation or NPFC claims.1 23
Although the GCCF was designed to resolve claims wholly
outside of litigation, the two processes are inherently linked. The
GCCF does not operate in a vacuum. Each claim settled by the
GCCF is one less claim pursued in litigation, meaning one less
putative class member in the pending class actions. The claim
values established in the GCCF could well influence perceived
values in the litigation system. The next section examines, using
the GCCF as an example, the interplay between mass claims
resolution facilities and our traditional adversarial legal system.
IV. THE INTERSECTION OF COURTROOMS AND CLAIM FACILITIES
Administrative claims systems often are created to adjudicate
claims after a settlement is reached. While one paramount goal of
a mass settlement is to achieve complete closure, that goal is often
not achieved. If the settlement occurs in a class action context,
there will typically be a right to opt out of the class, and those
claimants who opt out will retain the right to litigate. In the
bankruptcy context, claims may be channeled into a trust that will
resolve the claims through a mass claims facility, but the
claimants always retain the right to litigate (after exhausting all
administrative remedies). As a practical matter, in the context of
settlement and bankruptcy claim facilities, few claimants will
seek to litigate their claims because the settlement terms are
designed to make litigation a less attractive option. On the other
hand, in the context of "ad hoc" or statutory mechanisms,
claimants may be required to choose between litigation and
resolution through the administrative process.
In general,
therefore, some form of litigation will proceed even if most claims
ASSOCIATION
(2007),
http://www.atra.org/issueslindex.php?issue=7344
(providing a multi-state survey on application of the collateral source rule).
121. GCCFFAQs,supra note 44, at FAQ 10.
122. Id. at FAQ 12.
123. Id. at FAQ 10.
130 ROGER WILLIAMS UNIVERSITY LAWREVIEW
[Vol. 17:97
are resolved through an administrative process.
This "parallel track" raises issues about how the litigation
process affects the claims resolution process and how the claims
This section
resolution procedures might affect litigation.
in
this
context
and how
examines the questions that can arise
those issues have been addressed.
Some argue that claims resolution facilities unfairly allow a
defendant to dictate all of the settlement terms. But is that really
true? If there is a viable litigation option, the administrative
program will not be successful unless it provides some incentive to
the claimants. Although a private party may design a facility
without the input of claimants, their attorneys, or a court, the
party must nonetheless "bargain" with the universe of claimants
in order to draw them to the facility. If a facility wants to attract
people to it and away from litigation, it will have to provide terms
and compensation that are favorable or at least comparable to
litigation. Unless the claims resolution program is the product of
collusion, if the amounts or terms offered to claimants do not
exceed or approach what they reasonably expect from litigation,
claimants will pursue that route rather than the claims facility.124
Key considerations, then, are transparency, communication, and
disclosure.
There is nothing inherently wrong with nonindependent parties settling litigation, and in fact, adverse parties
regularly do so.
Given the numerous advantages a claims facility offers over
litigation, many claimants may prefer it, or at least appreciate
having an additional option. And as long as it is just an option,
meaning claimants can choose to pursue their claim in litigation
or through a claims fund, is there any cause for concern or a
reason for courts to intervene? Although GCCF claimants are
statutorily required to present their OPA claims to the GCCF in
the first instance, nothing prevents them from rejecting the
GCCF's offer and then suing BP. In fact, about 18,000 claimants
have rejected BP's Final Payment offer and may now pursue their
124. See Rutherglen, supra note 14, at 677. As an example, because the
primary goal of the September 11th VCF "was to persuade potential plaintiffs
to opt out of the tort system..., compensation from the Fund had to be
similar to an award obtained via the traditional tort system." Steenson &
Sayler, supranote 26, at 532.
2012]
SETTLE OR SUE?
131
claims in court if they so choose.12 5 Moreover, personal injury
claimants do not even need to file a GCCF claim and may instead
directly sue BP. Yet, clearly some personal injury claimants
appreciate the GCCF option, as more than 100 people have
accepted personal injury payments from it. 126
The BP oil spill litigation and the GCCF present a useful case
study. Most claimants who pursue damages allegedly caused by
the BP oil spill will proceed in one of two ways: either they will
accept an offer made by the Facility or they will reject it and
pursue their claim through litigation. And although the GCCF is
designed to operate independent of, and indeed avoid, litigation,
the two tracks are inextricably linked. At the same time that the
GCCF is accepting and paying claims, hundreds of consolidated
cases are pending against BP. A claimant who chooses one route
may not choose the other. Thus, anything that affects a claimant's
decision to pursue one route over the other inherently affects both
processes.
Various questions, complaints and criticisms have been raised
about the GCCF, ranging from how it communicates with
claimants, how it reviews and evaluates claims, what it requires of
claimants to establish their claims and receive compensation, and
how it makes individual claim determinations and valuations.
The judge presiding over the consolidated cases has already
addressed some complaints about what the GCCF can or cannot
do. More specifically, the judge has issued guidance regarding the
disclosures to be provided to claimants. The judge has not
interfered with the GCCF's guidelines for the evaluation of claims
but has directed the GCCF to make its operations and
relationships clear to claimants and to avoid describing the GCCF
as wholly independent from BP. But aside from the merits of the
various criticisms, interesting questions arise about whether and
how the judge should be addressing these criticisms. A judge
125.
Of the 83,435 Final Payment Offers made, only 65,984 have been
See GCCF Overall Program Statistics, GULF COAST CLAIMS
FACILITY,
1 (Nov. 22, 2011) http://www.gulfcoastclaimsfacility.com/
GCCFOverallStatusReport.pdf.
126. See id. at 6. Many more people likely filed personal injury claims but
either were denied or rejected the Fund's offer. However, the GCCF's website
does not post the number of personal injury claims made, just the number of
personal injury claims paid. See id.
accepted.
132 ROGER WILLIAMS UNIVERSITY LAWREVIEW
[Vol. 17:97
presiding over a class action has some authority and obligation
with respect to the class members and of course has authority to
manage his or her cases. There is some precedent for a court
presiding over a class action to limit the communications between
a defendant and members of the class.127 But if an individual
seeks to settle, with full disclosure of relevant information, should
the court interfere?1 28
Here, however, BP and the GCCF were accused of misleading
claimants into settling their claims. First, before the GCCF was
even launched, BP's initial settlement tactics were criticized as
deceptive. The company was accused of "trying to pull the wool
over" the eyes of local fishermen by requiring them to sign
litigation waivers in order to be hired to help in the cleanup
process. 129 Further, then-Alabama Attorney General Troy King
expressed concerns that BP was requiring people to waive their
rights to sue in exchange for just $5000 and warned citizens to
"'proceed with caution and understand the ramifications before
30
signing something like that."'1
Even after the GCCF took over, there were allegations that
claimants were being misled into resolving their claims through
the facility by being led to think that an independent and neutral
body, and not an interested agent of BP, was evaluating their
claims. The argument went that not only did BP and the GCCF
claim to be independent, but even the White House called
Kenneth Feinberg an "independent claims administrator."1 31
Parties may approach and evaluate an offer made by a party that
127. See, e.g., Turner v. Murphy Oil USA, Inc., No. 05-4206 (E.D. La. Nov.
14, 2005), ECF No. 39; Hampton Hardware, Inc. v. Cotter & Company, 156
F.R.D. 630 (N.D Tex. 1994).
128. To the extent that the GCCF is simply a process for settling claims
between two parties, there is nothing extraordinary about one party making
an offer that the other determines whether to accept. Typically, a court does
not supervise a negotiation and the "defendant" does not advertise the
mechanism by which the offer was determined.
129.
Eli Saslow, Louisiana Fishermen Contemplate Livelihoods Forever
Changed by Gulf Oil Spill, WASH. POST, May 4, 2010, at Al, available at
http://www.washingtonpost.com/wp-dyn/content/article/2010/05/03/AR201005
0304585.html; Josh Wingrove, BP Pulls Disputed Waiver for Workers, GLOBE
AND MAIL (Toronto), May 3, 2010, at All.
130. Condon, supra note 75. Notably, the GCCF's $5000 Quick Payment
Award also requires the claimant to sign a release.
131.
See, e.g., White House Fact Sheet, supra note 76.
2012]
SETTLE OR SUE?
133
it knows to be adverse much differently from an offer made as a
result of a process that claims to be independent and that
seemingly has a Presidential seal of approval.
Thus, a few months after the GCCF was established,
attorneys representing plaintiffs in the consolidated Deepwater
Horizon multidistrict litigation asked the judge overseeing the
case to restrict Mr. Feinberg's and the GCCF's communications
and for other measures that they believed would help claimants
make better-informed decisions about whether to join the
GCCF.13 2 While the court "encourage[d] and commend[ed] any
claims process that will fairly, quickly, and efficiently resolve
claims in this litigation," it also recognized the need for
transparency so that claimants can "learn, comprehend, and
appreciate" how the facility works and "fully evaluate the
rationale behind the communications made to them by the
facility." 33 Though it found that not every measure requested by
the plaintiffs was "appropriate or necessary," the court did
determine that the GCCF was not fully independent of BP and
that the relationship between the two "led to confusion and
misunderstanding by claimants."1 34 Thus, in balancing the need
for transparency with the GCCF's "ability to fairly and efficiently
process claims," it ordered BP, the GCCF, and Mr. Feinberg to: (1)
refrain from directly contacting any claimant represented by
counsel; (2) refrain from saying the GCCF and Mr. Feinberg are
"neutral" or completely "independent" from BP; (3) begin all
communications with potential claimants by informing them of
their right to consult with an attorney; (4) refrain from telling
claimants not to hire a lawyer or otherwise giving them legal
advice; (5) tell claimants of their options if they reject a final
payment; and (6) advise claimants that the pro bono attorneys and
other representatives that were available to assist them were
being paid by BP.13 5
Importantly, what troubled Judge Barbier was not whether
the GCCF and Mr. Feinberg were or were not independent of BP,
but rather whether they were honestly representing the nature of
132.
133.
134.
135.
See Memorandum in Support, supra note 118, at 1-2.
See Order and Reasons, supra note 80, at 7-8.
See id. at 12-13.
Id. at 8, 14.
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their relationship.1 36 In his view, the only way that claimants
could fairly evaluate the GCCF's offer and decide whether it was
worth giving up their right to sue BP and all other defendants was
if they knew whether that offer was being made by BP and its
agents or by a truly neutral and independent party. 137 Indeed, the
issue was not that BP's agent could never make a fair offer, only
that to be a fair offer, claimants must know that BP's agent made
it. Judge Barbier passed no judgment - positive or negative - on
the administrator himself, on the nature of his relationship with
BP, or on whether Mr. Feinberg could make fair determinations.
Similarly, though he required the Fund to disclose that BP was
paying for the pro bono attorneys offered to claimants, he passed
no judgment on the acceptability of that arrangement.
By framing the issue on the perceptions and understandings
of the claimants rather than on the competency of the claims
system, Judge Barbier's decision supports the notion that claims
facilities represent a bargain between parties to a dispute and
that claimants, armed with full knowledge, are capable of
determining how best to resolve their claims. The court has
concluded that against the backdrop of pending litigation, one of
the defendants is free to try to remove claims from the litigation
through settlement and claimants are free to decide whether to
pursue their claims against the party through the facility or in
court. However, for this bargain to be fair, the parties must be
able to accurately consider the offers being made. Thus, issues
such as the administrator's qualifications, conflicts, and
compensation, or to whom he answers, might not need to be
regulated as long as the claimants are aware of them. Nor might
there be a problem with the defendant making attorneys available
to assist claimants, as long as the claimants know about the
connection.
Judge Barbier relied on Rule 23 and the Manual for Complex
Litigation to restrain the GCCF's and Mr. Feinberg's
communications with potential class members after finding that
they were not entirely independent of BP.138 The ad hoc status of
136. Id. at 7-8.
137. Id. at 7-8, 12-13.
138. Id. at 11. Rule 23 "allows courts to issue orders 'to protect class
members and fairly conduct the action' and 'impose conditions on represented
parties,"' while the Manual for Complex Litigation says that .'[t]he court
2012]
SETTLE OR SUE?
135
the GCCF raises interesting questions about court oversight.
Does the court's authority under Rule 23 give the court the
authority to address any other complaints about the claims
facility? Could it order the removal of the claims administrator?
Adjust the timing of payouts or extend the claim-filing deadline?
Courts can and do exercise this authority when overseeing claims
facilities that they approved to settle class actions, but may courts
do so over facilities that are established outside the confines of a
certified class or a confirmed bankruptcy plan? 39 And if these
courts can make these determinations, what standard are they
supposed to follow? Courts that supervise settlement claims funds
do so pursuant to their Rule 23(e)(2) authority to ensure that
settlements are "fair, reasonable, and adequate." 140 In contrast,
Judge Barbier found that any claim of the GCCF's independence
was "a direct threat to this ongoing litigation."141 Should judges
be able to mitigate anything they perceive to be direct threats to
their litigation? How threatening must an action be before the
court can address it?
For example, the GCCF is establishing damages theories well
in advance of those determinations being made in the litigation,
and so litigants may have a hard time rejecting those
determinations. Could Judge Barbier order the GCCF to apply a
different proximate cause standard and compensate those hotel
owners in Florida who lost business even though the oil never got
close to their property?
It is also important to consider the effect that the litigation
may have on the administrative claims process. For example, if
plaintiffs lose the first group of cases brought to trial against the
must protect the interests of absent class members, and Rule 23(d) gives the
judge broad administrative power to do so. ... '".See id. at 4 (citation
omitted).
139. The judge overseeing the Dalkon Shield trust replaced the fund's
trustees after they appointed necessarily conflicted attorneys as counsel for
the trust. See Rutherglen, supranote 14, at 686-87. The court overseeing the
Agent Orange program made several modifications, including extending the
filing date and allowing certain claimants to receive lump sum payments
instead of installments as originally mandated. Final Report of the Special
Master on the Distribution of the Agent Orange Settlement Fund, supra note
8, at 13-14.
140. FED. R. Civ. P. 23(e)(2).
141.
Order and Reasons, supra note 80, at 12-13.
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defendant, remaining claimants might lose significant leverage
and so the facility could theoretically begin offering lower
Whereas facilities created to settle class action
payments.
litigation or pursuant to a confirmed bankruptcy plan are bound
by the settlement agreement or plan of reorganization and are
thus subject to the court's oversight, there may be nothing
requiring an ad hoc facility to follow the methodology and
guidelines it created for itself. As another example, Judge Barbier
recently found that OPA does not bar plaintiffs from seeking
punitive damages against BP and other Responsible and nonResponsible Parties.14 2
Though settlement and bankruptcy
facilities might be statutorily or contractually prohibited from
treating present and future claimants differently, what would
prevent the GCCF from increasing the offers made to future
claimants to discourage them from filing litigation claims for
punitive damages? These various issues underscore the tenuous
balance that exists.
In this unusual context, the court and the GCCF have
demonstrated restraint and deference to each other, while still
retaining the necessary control over their own functions.
V.
CONCLUSION
A mass claim situation necessitates unusual procedures. The
litigation system has limitations that make it difficult if not
impossible to address and resolve mass claims in a timely and fair
fashion. At some point, there is societal interest in delivering
compensation efficiently and addressing situations that have
caused devastating injury. The GCCF and other administrative
compensation systems allow claimants to obtain compensation
years if not decades sooner than would be possible through
litigation. Of course, reasonable parties can differ as to the
structure and criteria employed in any administrative scheme.
Society does have an interest in ensuring that such systems are
accountable, and that they operate in a way that allows the
claimants to truly evaluate their options.
142. See Order and Reasons, In re Oil Spill by the Oil Rig "Deepwater
Horizon" in the Gulf of Mexico, on April 20, 2010, at 26-27, MDL No. 2179
(E.D. La. Aug. 26, 2011), ECF No. 3830, available at http://
www.laed.uscourts.gov/OilSpill/Orders/826201lRevisedOrder(MotionsToDis
missBlComplaint).pdf.